Microsoft weighs an Xbox spinoff. Would it revive the business or put it at risk?

Microsoft is reportedly considering a spinoff or restructuring of its Xbox gaming unit, as the division’s bets on subscriptions and cloud gaming have come up short and console sales have continued to decline. Sales of Xbox hardware were down 33% year over year, the company reported in its most recent earnings. That’s a long way from the unit’s heyday. Xbox launched in 2001 and came close to outselling Sony during the Xbox 360 era. Sony regained dominance in the last console generation and has extended its lead in the current one. Microsoft, meanwhile, has leaned heavily into cloud gaming in recent years, but saw a major subscriber drop after a 2025 price increase. Microsoft did not reply to a request for comment on the spinoff reports. However, Asha ‌Sharma, ⁠who took charge as CEO of Xbox in February, and Chief Content Officer Matt Booty recently posted a note to staff that acknowledged the troubles at Xbox. They didn’t hold back. “Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time,” the execs wrote. “Going forward, this cannot continue.” The glory days of Microsoft’s Xbox unit are far behind it, and that has the company exploring new directions. The question is whether Xbox can become a significant player in the video game console space again, or whether players have relegated it to nostalgia. Rising costs Microsoft famously went on a spending spree a few years ago, buying major publishers including Bethesda and Activision. In the note, Sharma and Booty acknowledged that Xbox cannot support them all. The soaring price of computer memory was also acknowledged as a barrier for sales of both current consoles and the in-development next generation system (codenamed Project Helix). Component prices have increased five-fold since 2024. “We are